How long you plan to stay in your new home may affect what home you choose. If it’s under three years, consider a prospective purchase’s resale qualities. Look for things that would help you sell your home faster in a buyer’s market. Light-colored carpeting, neutral-colored walls, a modern kitchen and bathrooms and a multi-car garage are all pluses.
Then there’s the question of how much house you’ll be able to afford. Generally, a mortgage payment should be less than a third of your monthly gross income. But loan officers will consider your individual circumstances in determining your qualification amount.
Homebuyers can generally choose between fixed-rate and adjustable-rate mortgages. It’s important to understand your choices.
The interest rate for a fixed-rate mortgage remains the same for the entire life of the loan. (That could be 15, 20 or 30 years.) So they’re very predictable. You know exactly what your principal and interest payments will be. However, your total monthly payments may increase as property taxes and insurance rise.
The interest rate for an adjustable-rate mortgage (ARM) may vary as the economy fluctuates. At set dates, the lender can adjust the rate. For example, for a 3/1-year ARM, the interest rate will be locked for only the first three years.
Usually, ARMs carry two caps. One limits how much the lender can raise the rate at each adjustment. The other limits how much the rate can be raised over the life of the loan.
A third option, interest-only loans, is not widely available. They’re rarely made to anyone but wealthy borrowers with excellent credit and usually require sizeable down payments.